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Auctions vs. Private Treaty Sales. What's the difference?

Written by Ben Saravia,  
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Shortly after beginning your property buying journey, you will have quickly noticed that houses for sale are priced and sold differently. For example, some homes advertised for sale may say “Price on Application”, “Offers over X amount” or simply say “Auction”. The reason for these differences depends on the way the vendor or seller of the home wants it to be sold. Legally, real estate is sold in Australia in two fundamental ways:

Private Treaty Sales.

A private treaty sale is when a home is advertised for sale with either a set or guide price offered. A private treaty sale allows for negotiation with respects to the price and conditions of the contract of sale between the buyer and the seller. For example, you may have found a home advertised with $500,000 and decide to make an offer for $480,000. In this case, a vendor may accept your offer, reject your offer, or make a counteroffer.

In other circumstances, as has been seen recently (and famously) in Byron Bay, some buyers may even offer above the asking price if they really want to ensure that they acquire the property. Other terms and conditions can be asked for and offered, such as an extension to the length of time for settlement or even to request that some existing features or appliances may be included in the purchase.

Auctions

Things are a lot different when purchasing a property via auction. Whether you attend an auction in person or online (as has been a recent requirement in some states due to Covid) the terms, rules and regulations will be the same as if the auction had been done in person.

A property auction will be conducted by a licensed auctioneer who will sell the property at or above the reserve price on a given date. The reserve price is the minimum amount the seller will sell the property for. Interested buyers place incremental bids until there is one highest bidder, who then has a legal obligation to purchase that property.

What is the big difference?

A private sale treaty allows time for due diligence

Buying a home via private treaty offers several assurances that a sale at auction does not, such as ‘subject to’ clauses in the contract of sale.

If a seller accepts your offer on a property, your contract of sale will be, amongst other things, subject to ‘Pre-purchase Pest and Building Inspections’. If, following pre-purchase inspections, the house was found to be severely damaged by termites, then you would have legal grounds to walk away from the sale. For smaller issues, the seller may have to remedy these before you take possession. All of this can give a homebuyer more certainty and protection against unseen costs from situations that may arise.

An auction means you buy what you see.

With auctions, what you see is what you get. If you intend to bid at an auction, be sure to arrange your own pre-purchase building and pest inspections before you attend the auction. If you fail to conduct these essential checks, you will essentially be buying ‘blind’ and have no legal remit should the property be found to have an issue.

An auction doesn’t allow for price certainty.

With an auction, you may have a guide price, but overall the final price can be hard to predict as it depends on the amount - and motivation - of the bidders that attend on the day. It really is a classic case of supply and demand.

Private Treaty sales ultimately allow you more protection, time and certainty when buying your home. However, in times and locations of high demand, you will often find more auctions, and as such, you should not rule them out altogether as doing so may be limiting the search for your new home. Knowing how property is sold, doing your diligence, and remaining calm in the buying process, whether it be via auction or private sale, is key.

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